BISMARCK: Lower oil prices mean less oil leaves North Dakota by rail and more oil departs by pipeline as producers have less incentive to seek better prices at coastal refineries.
The unheralded shift has been dramatic, with the state’s oil production plateauing with the sharp drop in prices. As of the end of June, the most recent figures available, shipments of Bakken crude oil from North Dakota via rail and pipeline were essentially equal: 47 percent by rail, 46 percent by pipeline.
“My estimation is rail shipments have gone down substantially since the peak in late 2014,” said Justin Kringstad, director of the North Dakota Pipeline Authority, which tracks oil shipments by pipe and rail. Estimated rail export volumes of crude by rail leaving North Dakota peaked around 850,000 barrels per day at the end of 2014 and dropped to around 640,000 barrels by June.
A new pipeline went into service in February and the Dakota Prairie Refinery, which makes diesel fuel, began operating in May—two projects that mean less oil must be exported by rail, Kringstad said.
As additional pipelines reach completion in 2017 and beyond, the shift to exporting more oil via pipeline could get a boost, he said. In the meantime, Kringstad predicts, rail shipping will continue at a high level. “There’s going to be a lull here until we have any new pipelines go into service,” he said. Rail shipping capacity grew rapidly along with the sharp increase in production during the boom in the Bakken, which exceeded pipeline capacity.
Rail shipment of oil was also often more attractive than pipeline because producers could get higher prices at refineries along the East and West coasts than near the Gulf Coast, the destination of many pipelines.
Most of North Dakota crude-by-rail shipments move on the BNSF Railway system. A BNSF spokesman acknowledged that oil rail shipments have declined, a drop-off he attributed to the sharp drop in oil prices.
“We certainly are seeing volumes for crude-by-rail down on a year-over-year basis, but it certainly remains a business that we remain committed to,” said Mike Trevino, BNSF’s assistant vice president for external communications.
Despite the decline, BNSF continues to move several oil trains out of North Dakota daily, he said, and crude-by-rail shipments likely will continue to be significant in the years ahead. Although rail shipments can be more expensive than pipelines, they offer greater flexibility for the shipper, including the ability to reach markets offering a higher price, Trevino said.
By the end of the year, BNSF will have invested $1 billion in North Dakota to expand rail capacity, including sections of double track and rail sidings. Trevino said those upgrades have eased bottlenecks that in recent years delayed shipments of grain and other farm commodities.
Added capacity—not declining crude-by-rail shipments—are the reason for speedier rail shipments, he said. “Certainly we feel good about the capacity we now have” in the northern tier of states, Trevino said, including North Dakota.
